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Auckland's first fibre
Steven Joyce installing Auckland’s first UFB cable – Albany – 24 August 2011

Australia’s politicians continue wrangling over that country’s FTTP (fibre-to-the-premises) project. Meanwhile New Zealand’s is progressing. Yet New Zealand’s low fibre uptake could yet inform Australia’s FTTP debate.

Figures released yesterday by communications minister Amy Adams show 134,000 homes and businesses can now connect to the UFB network. Building is taking place in 24 of the 33 towns and cities that will be on the government’s network.

Meanwhile 89,000 rural homes and businesses can connect to the Rural Broadband Initiative through fixed wireless connections. A further 36,000 rural users can now use fixed-line services.

To date only 3800 customers have signed for UFB fibre services. That’s a low take-up rate – less than three percent.

The priority at this stage is to sign businesses, schools and medical facilities. Yet the fibre companies started their residential build in areas where they expected the highest uptake.

GIven that fibre is no more expensive than existing copper broadband, this suggests there could be problems persuading consumers to switch.

There are two reasons why more haven’t moved. First, the big ISPs, who account for the overwhelming majority of the market, have yet to begin selling fibre services. That’s likely to happen in the coming months – having more people on the UFB will give them more incentive to move into the fibre market.

Second, the government and the people boosting fibre have done a poor job selling its advantages to consumers. Instead of telling people fibre is fast and reliable, they focus on ridiculous and, to most people, irrelevant, high-end applications. Telecom and Vodafone are likely to do a far better sales job than the government.

AucklandBritain’s 4G spectrum auction raised a third less than expected. UK telecommunications companies paid £2.3 billion to snap up the extra bandwidth needed to run next generation mobile data networks, that’s £1.2 billion less than the amount penciled-in by the government.

What does this mean for New Zealand’s spectrum sale which will probably take place later this year?

Previously there’s been speculation an open auction of the 700MHz band could raise $200 million. That figure  may look ambitious now.  

Vodafone and Telecom NZ are both experimenting with 4G services and are likely to bid for the new spectrum. 2Degrees could also take part and smaller players have bid for spectrum in earlier auctions.

The 700Mhz band is a sweet spot for mobile broadband – at those frequencies mobile signals do a better job of reaching through buildings in densely populated areas like central business districts.

As a rule of thumb, the lower the frequency, the higher the value of spectrum to carriers.

There’s also a Māori claim for spectrum which many expect could be used by iwi as a bargaining counter to wrest back some control of 2degrees – although that is not the only course of action open to Māori.

You could argue New Zealand’s carriers paid too much for 3G spectrum in 2001, it’ll be interesting to see how they act this time. While no-one wants to be locked out of 4G, the carriers will be just as wary of  overbidding.

Tasman Global Access Auckland-Sydney cable
How the Tasman Global Access fits into the bigger picture

Telecom NZ, Vodafone and Telstra plan to build a new submarine cable linking New Zealand to the east coast of Australia. When completed in mid to late 2014, it will be the second major broadband link between New Zealand and the rest of the world.

The companies say the project will cost less than US$60 million and will include three fibre pairs for a total capacity of 30TBps – that’s around 300 times the current data demand.

Telecom NZ is 50% owner of the rival Southern Cross Cable network, so there are question marks over whether the new cable will do much to increase competition. Nevertheless, bringing Vodafone and Telstra into the ownership ensures Telecom NZ doesn’t have monopoly control over New Zealand’s international data links.

Comment: It was clear from the moment Pacific Fibre closed down last August that someone would move to fill the submarine cable void. This joint venture from Telecom NZ, Vodafone and Telstra effectively sees off any other projects which may or may not have been planned. Building a new submarine cable is a smart move on their part: taking control of their own future and not waiting for someone else to control it.

Although some argue New Zealand needs a direct trans-Pacific link to the west coast of the USA, that falls into the category of a nice-to-have luxury and not essential. Investors weren’t convinced of Pacific Fibre’s $400 million business case.

Building a link to Australia was always the most cost-effective option. About 40% of NZ traffic goes across the Tasman and the relative rise of Asian economies compared to the USA means the route to our west will eventually be more important than the route to the east.

The lower latency promised by Pacific Fibre’s direct link between NZ and the USA is far less important than having a second network. And anyway, much of the data used by New Zealanders is cached in Sydney so arguably a second Tasman will mean as much of a speed boost for most users.

It’ll be interesting to see how the joint venture partners go about selling access on the new cable and how they’ll treat New Zealand’s smaller ISPs and data users. There’s unlikely to be any regulatory oversight – which makes some commentators uneasy. The joint venture structure, together with the structure of Southern Cross Cable Network should deliver some competition.

One last thought – and a question for informed readers – is where does this leave Chorus? You might expect the largest network company to want a role in one or more of the international networks. And with Telecom effectively sitting upstream and downstream, does this leave the company in a difficult strategic position?

If anything New Zealand’s data appetite grew even faster than the Cisco estimate.

2degrees sent out a press release last week saying network data increased by almost three times in the last year. It didn’t say what the base was, so it isn’t clear if that estimate means anything much.

Meanwhile Vodafone New Zealand says data traffic has quadrupled over two years and climbed by 1300% in the last four years.

Although it is called a levy, the $50 million government collects each year from telecommunications companies looks a lot like a tax.

That’s not necessarily a bad thing. The Telecommunications Development Levy pays for worthy causes like the government’s $300 million Rural Broadband Initiative, services for deaf people and upgrades to the 111 emergency call service.

Subsidising rural users

The TDL replaces an earlier scheme called the Telecommunications Services Obligation (TSO) which, in theory anyway, divided up the cost of providing land-line telephone services to unprofitable rural customers.

In effect it meant companies like Vodafone, CallPlus and Orcon had to shoulder some of the costs mainly carried by Telecom as a hangover from the days when a phone system was a public service, not a commercial business.

There was no end of arguing over the TSO. Vodafone pointed out those subsidised rural land line customers might be better off with mobile coverage than land-lines. There were other disputes.

New fund, new arguments

Now Chorus, which provides wholesale services to retail telcos, argues it shouldn’t pay the new levy. The company’s prices are largely regulated. Chorus can’t pass the additional cost on to its customers. The Commerce Commission, which manages the TDL doesn’t agree.

After considering charging content providers like Sky who deliver services over the telephone network, the Commerce Commission has backed off. The telcos aren’t happy about this, not is the Tuanz, the telecommunications user association.

The usual process is New Zealand is for too-ing and fro-ing between interested parties before the Telecommunications Commissioner makes a final decision.